Liristis v. American Family Mut. Ins. Co.

• Decision Date: 27 June 2002
• Docket Number: No. 1 CA-CV 00-0539.,1 CA-CV 00-0539.
• Citation: 204 Ariz. 140,61 P.3d 22
• Parties: Carla LIRISTIS, individually and on behalf of her minor child, Niko Liristis, Raymond Skiba and Christopher Liristis and Amy Liristis, individually and on behalf of their minor child; Steven Liristis, Plaintiffs-Appellants, Cross-Appellees, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin corporation, Defendant-Appellee, Cross-Appellant.
• Court: Arizona Court of Appeals

61 P.3d 22

204 Ariz. 140

Carla LIRISTIS, individually and on behalf of her minor child, Niko Liristis, Raymond Skiba and Christopher Liristis and Amy Liristis, individually and on behalf of their minor child; Steven Liristis, Plaintiffs-Appellants, Cross-Appellees, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin corporation, Defendant-Appellee, Cross-Appellant.

No. -0539.

Court of Appeals of Arizona, Division One, Department E.

June 27, 2002.

As Amended and Redesignated as Opinion December 26, 2002.

Dixon Ryan, P.L.C., Phoenix, By Thomas B. Dixon, for Plaintiffs-Appellants/Cross-Appellees.

Mariano & Allen, P.L.C., Phoenix, By Lynn M. Allen, for Defendant-Appellee/Cross-Appellant.

Treon, Strick, Lucia & Aguirre, Phoenix, By Richard T. Treon, Anderson, Kill & Olick, P.C., New York, NY, By Eugene R. Anderson, Law Offices of Amy Bach, Mill Valley, CA, By Amy Bach, for Amicus Curiae United Policyholders.

OPINION

GEMMILL, J.

¶ 1 Plaintiffs¹ appeal the summary judgment entered in favor of American Family Mutual Insurance Company ("American Family"). The trial court found there was no coverage under Plaintiffs' homeowners insurance policy for the mold contamination of their home that was allegedly caused by water used to extinguish an accidental fire. We find a question of fact regarding coverage and therefore reverse the judgment in favor of American Family and remand for further proceedings. We affirm the court's denial of American Family's request for attorneys' fees.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 2 We view the facts and all reasonable inferences therefrom in the light most favorable to the party against whom summary judgment was entered. In re 1996 Nissan Sentra, 201 Ariz. 114, 116, ¶ 2, 32 P.3d 39, 41 (App.2001). Plaintiffs are the owners and residents of a home insured by an American Family homeowners policy. In August 1996, there was a fire in the home resulting in fire damage and also water damage, because of the water used to suppress the fire. A contractor performed repairs, and American Family paid $31,370.99 to the Plaintiffs directly or on their behalf for claims related to that fire. Plaintiffs claim they noticed mold growth in the home within a month or two after the 1996 fire. Upon moving back into the home, Plaintiffs suffered allergic reactions and respiratory and other unexplained illnesses.

¶ 3 Following the repairs after the 1996 fire, the roof leaked each time it rained. Plaintiffs reported the first leak to American Family, and the contractor attempted to repair the roof. However, the roof continued to leak with each rain, which resulted in water soaking the walls, ceiling, carpet and property inside the home. Plaintiffs notified American Family of these additional leaks in July 1997, when Plaintiffs filed a claim for water damage caused by a leaking evaporative cooler on the roof.

¶ 4 In 1998 Plaintiffs retained an expert to perform an environmental assessment of their home. The expert confirmed the presence of mold growth in the home. Specifically, he found Stachybotrys, which produces harmful mycotoxins and other molds that produce allergic reactions. American Family also had an environmental assessment done, which confirmed the presence of Stachybotrys. American Family's consultant recommended immediate biological remediation to the home.

¶ 5 In July 1998, Plaintiffs made a claim for contamination caused by the mold. American Family denied the claim based on a policy exclusion for mold. Thereafter Plaintiffs filed a complaint alleging breach of contract, bad faith and unfair insurance trade practices. Both parties moved for summary judgment on the issue of coverage. The trial court concluded that there was no coverage for the mold damage, denied Plaintiffs' motion, and granted summary judgment in favor of American Family. The court then entered judgment for American Family on all counts. The record reflects that Plaintiffs did not object to this form of judgment. The court denied American Family's request for attorneys' fees. Plaintiffs appealed from summary judgment entered in favor of American Family, and American Family cross-appealed from the denial of attorneys' fees.

DISCUSSION

¶ 6 We apply a de novo standard of review when evaluating whether summary judgment was proper. United Bank of Ariz. v. Allyn, 167 Ariz. 191, 195, 805 P.2d 1012, 1016 (App.1990). Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Id. at 194-95, 805 P.2d at 1015-16.

¶ 7 The insuring clause of the American Family homeowners policy states in pertinent part:

We cover risks of accidental direct physical loss to property² ... unless the loss is excluded in this policy.

(Italics added).

The policy then sets forth the following losses-not-covered provisions:

We do not cover loss to the property ... resulting directly or indirectly from or caused by one or more of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.

* * *

6. Other Causes of Loss:

a. wear and tear, marring, scratching, deterioration;

b. inherent vice, latent or inherent defect, mechanical breakdown;

c. smog, rust, corrosion, frost, condensation, mold, wet or dry rot;

d. smoke from agricultural smudging or industrial operations;

e. settling, cracking, shrinking, bulging, or expansion of pavements, patios, foundations, walls, floors, roofs or ceilings;

f. birds, vermin, rodents, insects or domestic animals.

(Italics added).

¶ 8 Plaintiffs argue that the mold damage is an "accidental direct physical loss" to the home, caused by the water used to extinguish the 1996 fire, a covered loss. According to Plaintiffs, the policy does not exclude damages from covered events and mold damage is covered, in contrast to damage caused by mold. American Family initially responds that Plaintiffs have waived this argument by failing to assert it in the trial court. Plaintiffs counter that they consistently argued in the trial court for coverage under the precise policy language now at issue and they should not be precluded from asserting an additional reason why the policy language should be interpreted in favor of coverage. The record reveals that American Family is correct that this specific argument was not presented by Plaintiffs to the trial court, but it is also true that Plaintiffs sought coverage under the same policy language at issue here.

¶ 9 Ordinarily, we do not allow new issues or arguments to be raised for the first time on appeal. Paloma Inv. Ltd. P'ship v. Jenkins, 194 Ariz. 133, 137, ¶ 17, 978 P.2d 110, 114 (App.1998). While American Family characterizes Plaintiffs' argument as a new issue, Plaintiffs insist they have always argued that the language of the policy provided coverage for mold damage and they are entitled to assert on appeal an additional reason for that conclusion. Regardless whether the argument is a "new issue" or simply an "additional reason" for coverage, we conclude that the argument has not been waived, for the following reasons.

¶ 10 When the parties have tendered an insurance policy to the court for a coverage ruling, the court has discretion to read and interpret the policy correctly and is not necessarily limited to the arguments made by the parties. See Chase v. State Farm Fire & Cas. Co., 780 A.2d 1123, 1133 n. 12 (D.C.Ct. App.2001) (considering a policy provision not relied upon by the insured in support of coverage because "where a legal theory that a party does advance is grounded on a contract that is before the court, the court does have a duty to read the contract without blinkers on, so that it can discern the meaning and applicability of its provisions correctly"); see also Evenstad v. State, 178 Ariz. 578, 582, 875 P.2d 811, 815 (App.1993) ("[W]hen we are considering the interpretation and application of statutes, we do not believe we can be limited to the arguments made by the parties if that would cause us to reach an incorrect result.").³ Whether this policy covers mold damage caused by the fire is the fundamental coverage issue presented and we must address it.

¶ 11 Furthermore, the waiver rule is procedural rather than jurisdictional, Evenstad, 178 Ariz. at 582, 875 P.2d at 815, and we may forego application of the rule when justice requires. "If application of a legal principle, even if not raised below, would dispose of an action on appeal and correctly explain the law, it is appropriate for us to consider the issue." Id. (citing Rubens v. Costello, 75 Ariz. 5, 9, 251 P.2d 306, 308 (1952)). It is also significant that both parties have briefed and argued the issue extensively and there is no claim of surprise. See Stokes v. Stokes, 143 Ariz. 590, 592, 694 P.2d 1204, 1206 (App.1984) (the waiver rule "is intended to prevent surprise"). Under these circumstances, we choose to reach the substantive issue presented.

¶ 12 American Family next argues that mold is excluded under the losses-not-covered provisions, based on the plain language of the policy. The parties agree that mold could be both a loss and a cause of loss. See Phillips Home Builders, Inc. v. Travelers Ins. Co., 700 A.2d 127, 129-30 (Del.1997) (finding that settling of concrete slab can be both loss and cause of loss). However, the parties disagree about the significance of this distinction. We agree that mold may be either damage or a cause of loss, depending on the circumstances. For the reasons that follow, we hold that mold damage caused by a covered event is covered under the American Family policy in this case. On the other hand, losses caused by mold may be excluded.

¶ 13 The interpretation of an insurance contract is a question of law to be decided by this court independent of the trial court's conclusions. Sparks v. Republic Nat. Life Ins. Co., 132 Ariz. 529, 534, 647 P.2d 1127, 1132 (1982). We construe provisions of an insurance...